Tax System | Escoem

Tax system

Tax system

Nature: Tax levied on the worldwide income of individuals resident in Spain for tax purposes.
Tax residence: An individual is a tax resident in Spain if he or she has been in the country for over 183 days of the year or if his or her center of economic interests is in Spain. An individual is presumed to be a tax resident of Spain when his or her spouse and/or dependent children live in the country.
Tax rate: General income (such as employment income or business income) is subject to a progressive tax up to a maximum of around 45% (rates may vary by Autonomous Community). Savings income (such as interest income, dividends and capital gains) supposes taxation at a maximum of approximately 23%.
Incentives for the international mobility of workers: Inbound expatriates can apply, prior request, a special regime (paying taxes as nonresidents when they meet certain conditions), and outbound expatriates can take advantage of an exemption on earnings obtained from work performed abroad.

Nature:Direct tax levied on worldwide income of companies resident in Spain.
Tax residence: sCompanies are resident in Spain when they have been incorporated in accordance with Spanish legislation, when their registered offices are located in Spanish territory or when their place of effective management is in Spain.
Tax base: rProfit or loss for accounting purposes, adjusted upwards or downwards in accordance with tax principles.
Tax rate:The standard rate is 25% (special rates of up to 30% exist for credit institutions)
Dividends and capital gains: Taxed at the standard rate except where the exemption to avoid double taxation applies. In order to apply this exemption, the shareholding in the resident entity must be at least 5% of total capital or have an acquisition value of over €20 million, and must be held for at least one year without interruption. In the case of foreign companies, the investee must have paid corporate income tax or a similar tax at a rate of at least 10%, or be domiciled in a jurisdiction that has entered into a tax treaty with Spain.
Offset of tax losses against future profits: While there is no time limit, the offset is restricted to a percentage of taxable income prior to offset (70%, 50% or 25%), based on the company’s net amount of turnover (INCN in Spanish). In any case, the maximum amount for offset is €1 million per fiscal year.
Rules on related-party transactions: In line with OECD transfer pricing guidelines, whereby related-party transactions are valued on an arm’s length basis, according to the principle of free competition, and are subject to certain documentation requirements.
Main special regimes:

- Tax consolidation regime for groups of companies, provided the parent company holds at least 75% of subsidiaries’ capital (70% in the case of listed companies), to jointly pay taxes.
-Tax neutrality regime applicable to restructuring transactions such as mergers and spin-offs..

Main anti-avoidance rules:

- General anti-avoidance rule (GAAR)
- International tax transparency rules (controlled foreign corporation, CFC)
- Limit on the deductibility of net finance costs: limit of 30% of operating profit (deductible up to €1 million). Additional limit on the deductibility of finance costs derived from borrowings used to acquire holdings, in the case of acquisitions arising from mergers or consolidation.

Formal obligations: Prepayments in April, October and December of the current tax year and filing of a corporate income tax return in July of the following year (if the fiscal period is the calendar year; otherwise, within 25 days of the 7th month following the period close).

Value added tax (VAT)

Nature: Indirect tax levied on supplies of goods and services, intra-Community acquisitions and imports made by traders or professionals in Spanish territory (except the Canary Islands, Ceuta and Melilla). VAT is primarily borne by consumers and, in general, is neutral for companies that act as collection agents, given that they charge output VAT to their customers and receive a refund for input VAT paid to their suppliers. VAT is not neutral in sectors that carry out VAT-exempt activities (such as the financial sector).
Tax rates: 21%, 10% and 4%

Transfer tax under “transfers for consideration” heading (Spanish TPO)

Nature:Indirect tax levied on transfers of assets and rights for consideration, as well as on the creation of rights in rem of use, enjoyment, surety, personal rights (loans) and administrative concessions by individuals or entities that are not traders or professionals acting in the course of their business, as well as on certain real-estate transactions not subject to or exempt from VAT.
Tax rates: 1%-10% depending on the taxable event and the autonomous community.

Stamp tax: Levied on, inter alia, the execution of public documents that may be registered at a public registry. Tax rate: 0.5%-2%.
Transfer tax under “corporate transactions” heading: Tax levied on certain corporate transactions, such as capital reductions and liquidation. Incorporation of companies and capital increases are excluded from this tax. Tax rate: 1%.
Tax on business activities (Spanish IAE): Local tax levied on companies with revenue of at least €1 million, for business activity carried out in a specific municipality through the application of tariffs which are defined according to the business activity performed.
Tax on construction, installation projects and works (Spanish ICIO): Local tax levied on any construction, installation project or works requiring a municipal license. Maximum rate of 4% of the cost of the project (depending on the municipality).
Tax on increase in urban land value: Levied on the increase in land disclosed in the course of an inter vivos transfer or mortis causa transmission.
Inheritance and gift tax: Regional (autonomous community) tax levied on acquisitions for no consideration carried out by individuals (may differ significantly by region).
Wealth tax: Regional (autonomous community) tax levied on total assets of individuals (may differ significantly by region).

Nonresident income tax (Spanish IRNR)

Nature:Tax levied on income earned in Spain by individuals or legal entities that are not resident in Spain.
Permanent establishment (PE): income attributed to an EP is taxed in accordance with corporate income tax rules..
Income obtained without a permanent establishment

Main tax rates:

-Standard: 24% (19% for EU residents)
- Dividends, capital gains and interest income: 19%.
- Royalties: 24%.

Main exlusions:

- Capital gains (does not include buildings, real-estate companies or substantial holdings in companies) and interest income obtained by EU residents.
- Dividends, interest income and royalties, in application of EU directives, when paid to associates resident in the EU and providing certain requirements are met.

Inheritance and Gift Tax applies to Spanish resident heirs, beneficiaries and donees and is charged on all assets received (located in Spain or abroad). Nonresident beneficiaries are also subject to this tax as nonresident taxpayers, and must pay the tax in Spain only on the acquisition of assets and rights (whatever their nature), that are located, exercisable or to be fulfilled in Spain.

The tax base is formed by the net value of the assets and rights acquired. However, a series of reductions to the tax base are established, which include, most notably, the following:

Reduction of 95% of the tax base deriving from a transmission mortis causa to spouses, children or adopted children or, in their absence, ascendants, foster parents or collateral relatives up to the third degree of a professional business, an individual enterprise, or interests in entities or usufructs on them of the donor or deceased which were exempt from wealth tax. The requirements are as follows:

- The beneficiary of a transmission mortis causa must keep the assets received for at least 10 years.
- The beneficiary cannot carry out transactions that result in a substantial diminution in the value of the assets.

Reduction of 95% of the tax base for inter vivos transfers of interests in an individual enterprise, professional business or in entities belonging to the donor which are exempt from wealth tax (or which meet the requirements for such exemption) to spouses, descendants or adopted children provided moreover that (i) the donor is at least 65 years old or has a permanent disability, and (ii) if the donor had been discharging management duties, he/she must discontinue them and stop receiving remuneration in that connection.

The tax is calculated by adjusting a tax scale of progressive rates (depending on the value of the estate or gift) with a coefficient that takes into account the previous net worth and the degree of kinship with the donor.

As with other taxes devolved to the autonomous community governments, inheritance and gift tax legislation has been adapted to recognize the legislative power of those governments to approve reductions in the tax base and rates and in the coefficients for adjusting the tax payable, based on the taxpayer’s previous net worth. However, Law 22/2009, of December 18, establishes the reductions, rates and coefficients to be applied if the autonomous community in question has not assumed the powers devolved, or where it had not yet made any regulations in this regard..


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Distribution of the main exports and imports in Spain


  • Equipment goods20%
  • Foods16%
  • Automotive sector15%
  • Chemical products14%


  • Equipment goods21%
  • Chemical products15%
  • Energy products13%
  • Automotive sector12%

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Antonio Ramón Iáñez Sáez

Eloy García Tejada

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